Inflation falls to slowest pace since the start of the year. Headline CPI increased 7.7 percent over the 12 months ended in October, the smallest year-over-year increase since January 2022. While a notable deceleration compared to recent months, October’s downshift is unlikely to dissuade the Federal Reserve from raising the overnight lending rate again in December. The Federal Open Market Committee noted in its most recent forward guidance that it is looking for a clear trend of inflation normalizing toward the 2 percent target. Even so, the FOMC has also acknowledged that there is a delay between when monetary policies are put in place and when the economy responds, and last month’s slower price climb, paired with an uptick in unemployment, support a more moderate rate hike. The current expectation is for a 50-basis-point December rise in the fed funds measure, capping the fastest year of increases since the early 1980s.

High housing costs reflect long-term apartment need. Over half of last month’s CPI increase was driven by higher housing costs. The rap-id ramp-up in single-family home prices over the past few years has stalled recently amid a fervent ascension in mortgage rates, yet the combined result is the same — substantially higher barriers to own-ership. While multifamily rents have also climbed notably since 2019, the pace is about half that of the typical home payment. Apartments continue to offer living cost and lifestyle advantages that appeal to the aging millennial generation, as well as up-and-coming Gen Z. In recognition of these housing needs, multifamily construction activity is set to hit a record magnitude next year. While the new supply is warranted in the long-run, in the short term it will drag on funda-mentals, especially as high inflation and rising interest rates weigh on economic outlooks and prompt more households to stay put in 2023.

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* Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Federal Reserve; Real Capital Analytics; RealPage, Inc.; U.S. Census Bureau